Intel to cut 5 percent of workforce amid PC slump

The Intel logo is displayed outside of the Intel headquarters on January 16, 2014 in Santa Clara, California. (Justin Sullivan/Getty Images)

SANTA CLARA — A day after predicting its sales this year would be flat largely due to the dwindling market for personal computers, chipmaker Intel said it planned to cut more than 5,000 jobs over the next 12 months.

Intel spokesman Chris Kraeuter said Friday that the company expects to trim its ranks worldwide by 5 percent by the end of 2014. At the end of last year, it had about 108,000 employees, so 5 percent would amount to about 5,400 jobs. That appears to be the biggest number of cuts at the giant Santa Clara-based corporation since 2006, when it eliminated 10,500 positions.

Although Intel had about 6,000 Silicon Valley employees as of April, Kraeuter said the company wasn't disclosing where in its global operations the cuts would occur or which parts of the company would be affected.

“We're realigning and refocusing our resources” in response to the evolving chip market, he said, adding that some of the reductions could be through attrition, as employees retired or otherwise left the company on their own.

Intel has long dominated the PC chip market, but has struggled to make the move to mobile devices as personal computers have declined in popularity. Intel isn't the only tech company suffering because of the PC industry slump. Another company battered by the changing market is Palo Alto PC-maker Hewlett-Packard, which has been laying off 34,000 employees.

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“Intel is undergoing a reduction in force as a direct result of the decline of the PC market and Intel not gaining relevant market share in the growing phone and tablet markets,” said tech analyst Patrick Moorhead. Nonetheless, Moorhead said the chipmaker has been refocusing its efforts and “will take a huge run” at those mobile markets, hoping to gain an edge using its massive chip-manufacturing capabilities and state-of-the-art technology.

“The PC market is clearly no longer an engine for growth and the company is struggling to find other areas that can restore its growth,” added Nathan Brookwood of the market consulting firm Insight 64. As a result, “they probably had more people on board than they need. Whatever else you can say about Intel, they do run a tight ship.”

Noting that Intel also recently announced it has delayed opening a new chip-manufacturing plant in Arizona because of the PC slowdown, Brookwood said it would make sense if some of the job cuts are in manufacturing.

“If it was coming out of engineering, that would be in my mind more worrisome,” he said, “because historically when Intel was in trouble, their solution was to step on the gas with regard to innovation, not step on the brakes.”

Sergis Mushell, a principal analyst with research firm Gartner, said it makes sense that Intel would be reorganizing its workforce as it pushes to gain a foothold in mobile devices. He said the company is still a powerhouse, posting nearly $53 billion in revenue in 2013. But he was concerned about Intel's pace of progress in the mobile business.

“Every day they delay coming in, the value and the profits they can draw from this mobility market are being reduced,” he said. “They are coming in to catch the tail end of it.”

As the world's biggest chipmaker in terms of sales, Intel's fortunes are closely monitored as a bellwether for the broader tech industry. But as the PC business has weakened, its sales have slackened.

On Thursday, Intel said it made a profit of $2.6 billion for the fourth quarter of 2013 — an increase of 6 percent from the same period in 2012 — and it had sales of $13.8 billion, up 3 percent from a year ago. But for the year, its $52.7 billion in sales was down 1 percent and its $9.6 billion profit was off 13 percent from the previous year.

Moreover, it predicted its sales this year would be “approximately flat,” which didn't sit well on Wall Street.

While some analysts expressed concern about that in notes to their clients Friday, none seemed to be panicking. The experts at FBR Capital Markets said they even think the company's shares “may work higher” in the near future, because evidence has been mounting that the slump in PC sales may be easing.

“Moving forward,” they said, “we are increasingly confident that Intel can opportunistically extract value from the extra transistors afforded to it through the best silicon manufacturing operations in the world.”